Methods of Setting Stop Loss Stocks Orders In Stock

Traders using a stock system must have mathematical calculations that reveal where the order must be placed.

A trader can also place a stoploss order according to the technical indicators used to set these orders. Certain indicators use mathematical equations to calculate where the stoploss order should be set so as to provide an optimal exit point. These technical indicators can be used as basis for setting these orders.

Other traders also place these orders according to a predetermined risk to reward ratio. This method of setting is dependent upon certain math equations. For example a ratio of 50 pips stop loss can be used by a trader if the trade has the potential to make 100 pips in profit: this is a risk : reward ratio of 2:1

Others just use a predetermined percent of their total account balance.

To set a stop loss order it is best to use one of the following techniques:

1. Percent of Stocks account balance

This is based on the percent of account balance that the trader is willing to risk.

If one is willing to risk 2 percent of account balance then the trader decides how far he will set the order level based on the trade size which he has bought or sold.

Example:

If a trader has a $100,000 account & is willing to risk 2% then the position size of the trade that they will open for Stocks will be determined by this 2% stop loss level.

2. Setting Stop Loss Order using Support & Resistance Areas

Another way of setting stoploss orders is to use supports & resistance zones, on the charts.

Given that stoploss orders tend to congregate at key points, when one of these levels is touched by the price, others are set off, like dominos. Stoploss orders tend to accumulate just above or below the resistance or support levels, respectively.

A resistance or a support area should act like a barrier for stocks price movement, this is why they are used to set stop losses, if this barrier is broken the price movement can go towards the opposite direction of the original trade, but if this barriers (support & resistance zones) aren't broken the price will continue heading in intended direction.

Stop Loss Stocks Order level using a resistance level

Setting order above the resistance

Stop Loss Stocks Order level using a support Level

Setting order below the Support Line

3. Trend Lines

A stocks trend line can be used to set stop losses where the order is set just below the trend line. As long as the trend line holds the trader will be able to continue making profits while at the same time set this order that will lock his profit once the trendline is broken.

Setting order below the trendline

Example of where to set this order using stocks trend lines.